My Lords, I recognise the high degree of interest in the policies that will be covered by our proposals, and those which will be out of scope. I hope that I can provide some clarity today on what is intended and the reasons for this.
The Flood Re proposition we are debating today was carefully designed to address specific, medium-term issues in the domestic insurance market. It was not, of course, designed in light of the immediate crisis that we are facing. I heard the passion and concern from your Lordships last week, yesterday and, indeed, today, about the specific, frustrating issues affecting the broader community, including small businesses and the farming industry. It is clearly a distressing time for many, and I know that they are in all our thoughts. Again, I pass on my thanks to the Environment Agency, the emergency services and the many volunteers, including the churches, who are working tirelessly to help.
However, it is not immediately apparent that there is an insurance angle to the current situation. Those who have insurance will be covered by their insurer. I am grateful, too, for the efforts of the insurance
industry, which has been working hard in communities to ensure that damage is assessed and that claims are paid quickly. Until Flood Re is in place, insurers will continue to provide insurance cover. We have no understanding with the industry about expanding the scope of the scheme. I therefore ask that your Lordships forgive me if I combine my response to this debate to the specific proposition before your Lordships today.
I turn first to Amendment 155 of my noble friend Lord Moynihan, which would require the Secretary of State to publish a report on the ability of businesses in high flood-risk areas to secure flood insurance. I emphasise that decisions about the scope of Flood Re have been evidence-based. Compared to the household sector, there is not the same evidence of market failure in the commercial sector, where the insurance market is different. Bespoke policies are more routine—as my noble friend Lord Cathcart so eloquently explained—and they are already priced to risk. I listened with interest to what he, my noble friend Lord Ashton, and the noble Lord, Lord Whitty, had to say.
Businesses, unlike households, have a de facto income stream to cover their costs and can offset the cost of their insurance for tax purposes, so they are different. Flood Re, I emphasise, is concerned with helping to protect those relatively few low-income households from high insurance premia. My noble friend Lady Parminter was, perhaps, sceptical of the suggestion of a lack of evidence. A government survey of more than 9,000 businesses in England estimated that fewer than 1% of businesses had experienced difficulty obtaining property insurance in the last year due to the risk of flooding, and that no businesses had been refused insurance cover due to the risk of flooding.
For these reasons, we do not think that Flood Re would be the right solution for this diverse sector. While there does not appear to be a systemic problem with small businesses being able to obtain flood insurance—and our public consultation endorsed our approach—I recognise that some in areas of high flood risk may face specific issues. As my honourable friend, the Parliamentary Under-Secretary for Water, Dan Rogerson, said in Committee in the other place, the Government and the Association of British Insurers have both committed to monitoring the market for flood insurance, including that for small businesses. If sufficient evidence emerges of a problem for businesses, then we have both agreed to look at possible solutions. This research will be published and I will be happy to place a copy of that report in the Library when it is published.
Amendments 160 in the name of the noble Lord, Lord Whitty, and Amendment 160ZA in the name of the noble Earl, Lord Lytton, seek to require the Secretary of State to prepare and publish reports on the numbers of properties which would be out of the scope of Flood Re, including properties built after 1 January 2009, Band H properties, leasehold properties and private rented properties. It is very clear from his amendment that the noble Lord, Lord Whitty, has clearly understood that any increase in the amount of policies ceded to Flood Re would need to be funded by others. Indeed, he explained that in his speech on the amendments. It is important that helping households at high risk does not lead to price rises for others.
My honourable friend the Parliamentary Under-Secretary of State for Water set out indicative numbers and costs for including in Flood Re Band H and equivalent properties and properties built after 1 January 2009 in a letter to the Committee examining this Bill in the other place. I would be happy to ensure that this letter is made available to noble Lords who have participated in this debate today. However, I would not want noble Lords to think that the impact on the levy is the only reason for post-January 2009 and Band H or equivalent properties being ineligible. As I noted, we were very clear in designing Flood Re that we wanted to target the benefits where they were most needed, while not increasing the cost of living for those not at flood risk. That is the basis on which we made the decision that it would not be justified for Band H and equivalent properties to be included.
According to the 2011 living costs and food survey published by the Office for National Statistics, 85% of those who live in Band H properties and hold a combined insurance policy are in the top 30% of earners, with 48% in the top 10%. More significantly perhaps—and this is in response to the noble Lord, Lord Campbell-Savours—only 0.5% of such households are in the five lowest income deciles, which translates to roughly 45 properties in flood risk areas.
The 2009 cut-off date recognises that new housing developments should be located to avoid flood risk; or where development in a flood-risk area is necessary, they should be designed to be safe and appropriately resilient to flooding and not to increase flood risk elsewhere, in line with the national planning policies in place. This date therefore reflects the fact that homes built since then should already be insurable at affordable prices.
As noble Lords may know, when the agreement between government and the insurance industry, known as the statement of principles, was signed in 2008, it was agreed that there should be a cut-off date, which was set at 1 January 2009. That marker has been in operation for several years and has been maintained under Flood Re proposals. To be clear, there has been no change in policy. Therefore for the reasons that I have set out, we believe that the proposed exclusion of properties built after January 2009 and band H properties is fair and in line with the Government’s objective.